Tackling growing road transport emissions is one of the EU's biggest challenges in meeting its long-term climate change commitments. The European Commission's recent proposals to set CO2 emissions standards for new large trucks from 2025 could be good news for companies like Italy's Snam offering LNG – or even bio-LNG -- as an alternative fuel. But the impact on oil demand seems likely to remain minor, estimated at around 170,000 barrels per day from 2020 to 2040. S&P Global Platts editors Siobhan Hall and Frank Watson discuss the trends in transport energy demand as EU policy-makers seek to lower oil use to cut emissions, improve urban air quality and reduce oil import dependence.
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SIOBHAN HALL: Hello, and welcome to this Brussels to Beijing policy podcast from S&P Global Platts. I’m Siobhan Hall, Platts’ expert on European Union energy policy based in Brussels, and I’m joined from London by our European emissions expert Frank Watson. Today we're talking about the EU's efforts to cut emissions from road transport and the potential impact on oil demand and other fuels. The European Commission has recently proposed EU-wide CO2 emission standards for new heavy duty vehicles like trucks for the first time, as part of its wider efforts to meet long-term climate change commitments. But cutting transport emissions also ties in with EU policy goals to improve urban air quality, and reduce dependence on imported oil. So Frank, what are these new standards?
FRANK WATSON: Well, Siobhan, if these proposals from the commission become law, manufacturers would have to cut emissions from their largest new trucks by 15% on average by 2025, compared with 2019 levels. And then the commission has proposed a non-binding target to cut these emissions by at least 30% by 2030, and that target could also be expanded to cover buses, coaches and smaller trucks, for example.
SIOBHAN HALL: Right, so if these proposals get passed into law unchanged – which never happens of course -- what would be the impact on EU oil demand?
FRANK WATSON: Well according to the commission's estimates, these standards would reduce EU oil demand by around 170 million metric tons of oil equivalent between 2020 and 2040, or roughly 170,000 barrels per day. That would be worth around €95 billion in total in today’s oil prices, or about €5 billion per year.
SIOBHAN HALL: OK, so 170,000 barrels per day doesn't sound that much in volume, but I see it's still a significant amount in cash. Now I understand that trucks in Europe are almost entirely reliant on diesel, so how would manufacturers meet these standards?
FRANK WATSON: Well, there are several ways, including improving engine efficiency, for example, or switching some of the new trucks to lower carbon fuels like liquefied natural gas. The commission says the proposed binding 2025 target can be met with existing technology, but it's not clear yet what solutions will be available to meet the 2030 target. So that's why the commission is proposing to review that 2030 target in 2022.
SIOBHAN HALL: You mentioned LNG there as an alternative fuel. Can you give an example of emission standards driving demand for LNG in trucks?
FRANK WATSON: Yes, actually we have a very recent example, as Italian gas grid operator Snam has just announced plans to build four micro-LNG plants in Italy. The plan is to supply trucks with LNG as a lower carbon fuel than diesel.
SIOBHAN HALL: Ah yes, now that's an interesting example, because Snam is saying those plants could also liquefy biomethane to make bio-LNG.
FRANK WATSON: Yes, Snam is saying that bio-LNG is the only currently available option to have a fully renewable zero-carbon fuel for heavy goods vehicles.
SIOBHAN HALL: Well I know the European gas industry has high hopes over the next 10 to 20 years both for using gas in transport and for using renewable gas in general. It's all part of its survival plan as the EU moves to decarbonize its economy.
FRANK WATSON: Yes, the EU is committed to cut its greenhouse gas emissions by at least 80% by 2050, and the gas industry will have to find a way to be carbon-neutral by then to keep its place in the EU energy mix.
SIOBHAN HALL: There is clear growth in the gas for transport sector – but it's from a very low base. For example, Snam says the number of vehicles using LNG as a fuel in Italy has gone from less than 100 to about a 1000 in the last eight years. So it will be interesting to see if more micro-LNG plants significantly accelerate that growth.
FRANK WATSON: And it will also be interesting to see how electric vehicles develop. Local policy makers are keen on electric buses, for example, which ties in with efforts to improve air quality in cities by banning diesel engines. We've already seen London, Paris and other cities announce plans to restrict using diesel cars, and Germany's top court recently ruled that German cities are free to ban older diesel cars from their streets with immediate effect.
SIOBHAN HALL: Interesting! And this push on urban air quality is not limited to Europe, is it? It's becoming an issue in huge markets like China and India as well. So the commission wants to use these proposals to encourage manufacturers to develop cleaner trucks and buses which can be sold all round the world.
FRANK WATSON: Yes, China for example, already has around 200,000 electric buses in use. And the IEA has just estimated that electric buses globally displaced about 60,000 barrels per day of oil demand in 2017, while electric light duty vehicles displaced about 48,000 barrels per day.
SIOBHAN HALL: OK, so that makes the commission's estimate that its proposed emissions standards would save 170,000 barrels per day in the EU alone to 2040 seem more significant.
FRANK WATSON: But the IEA also now estimates that electric vehicles in total – including cars – will displace about 2.5 million barrels per day of global oil demand by 2030. That's ten years earlier than its estimate from just six months ago, so the picture is changing fast.
SIOBHAN HALL: Ah, well, now the commission's 170,000 barrels per day saving from trucks and buses to 2040 seems less significant!
FRANK WATSON: Well, to put that in context, global oil demand today is around 95 million barrels per day, so even 2.5 million is only about 3% of today's total. But these are early days still – I'd expect the commission to propose stricter vehicle emission standards over time to help meet its overall climate targets. The direction of travel is very clear here.
SIOBHAN HALL: Well, yes, this is clearly a fast-moving topic, and one we'll be keeping a close eye on here at S&P Global Platts. That's all we have time for today – thank you Frank for your insights, and thank you for listening. Join us again soon for more Platts’ perspectives on policy.